Nippon Life Insurance Co, Japan's largest private life insurer, is looking to buy asset management companies abroad, according to Reuters.
"We don't limit acquisition targets to any specific geographic areas. We are pursuing a wide range of opportunities," Yoshinobu Tsutsui, Nippon Life's president, told Reuters in an interview.
Nippon Life already owns an asset manager in Japan, and exposure to overseas managers will minimise its reliance on Japanese markets for revenue. "I think Japan's low interest environment will continue for a while," Tsutsui continued. "We strongly feel the need to have global asset management capabilities."
Although the Japanese interest rate (Bank of Japan), currently at 0.1%, is higher than the European one (0.05%), other central banks are offering higher rates, such as the Fed in the US (0.50%), the Bank of England (0.50%) and the Reserve Bank of Australia (2%).
The yield on 10-year Japan government bonds, currently at 0.22%, has dropped by around 16% year-to-date, and 3% in the last year after experiencing spikes in February/March and in the summer. As in many places, stocks had a bad start of the year; the Nikkei 225 lost almost 10% year-to-date, and around 2% in the last year. Bank of Japan governor Haruhiko Kuroda said on 12 January he is committed to lead the country towards a 2% inflation target.
The Interntional Association of Insurance Supervisors (IAIS) said in a recent report that Japanese life insurance companies have recently increased their holdings of risky assets, while restraining their investments in bonds with a maturity longer than 10 years, in response to further decline in interest rates. According to IAIS, they have also been increasing the number of acquisitions of and investment in foreign insurance companies.
Lower investment income last year
Nippon Life increased its stake in Reliance Capital Asset Management, an India-based asset manager, to 49% in October 2015.
The insurer has about ¥62trn ($528bn) in assets. According to its September six-month financial results, the firm has, based on its ALM philosophy, "built a portfolio geared towards medium to long-term investment and formulated an investment plan considering the outlook of the investment environment." It has positioned yen-denominated assets that should provide stable income (bonds and loans) as its core assets.
The firm has also invested in stocks and foreign securities "within the scope of acceptable risk." For the sake of diversification, it is also "steadily pursuing investments that can yield surplus income such as corporate bonds and securitised products and investment areas such as private equities and hedge funds."
Income from investment in those six months amounted to ¥794bn, down from ¥850bn in the same period in 2014. The decline was due to lower gains on sales of mainly domestic stocks. Investment expenses increased somewhat, due to greater losses on redemptions of securities. Net investment income balance went down by ¥59.2bn, compared to ¥720bn in the previous period.
